Mfa Financial, Inc. · NYSE:MFA
Mfa Financial — Q3 2019 Earnings Presentation
25 slides from Mfa Financial's earnings presentation, 2019
Slide 1: Third Quarter 2019 Earnings Presentation
Third Quarter 2019 Earnings Presentation
Slide 2: Forward Looking Statements
Forward Looking Statements When used in this presentation or other written or oral communications, statements which are not historical in nature, including those containing words such as “will,” “believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,” “should,” “could,” “would,”
Slide 3: Executive summary
Executive summary • MFA’s GAAP EPS and Core earnings (1) in the third quarter of 2019 were both $0.20, as our whole loan portfolio continued to make meaningful and growing contributions to our results. • For the third quarter of 2019, MFA acquired, or committed to acquire, $1.1 billion of assets, in
Slide 4: Executive summary (cont'd.)
Executive summary (cont'd.) • Third quarter investment activity was very robust as we purchased, or committed to purchase, approximately $1.1 billion of assets, including $918 million of Purchased Performing Loans.(1) • We continue to pursue new investment structures to strengthen our originator rel
Slide 5: Executive summary (cont'd.)
Executive summary (cont'd.) • Loan portfolio growth from Purchased Performing Loans has increased interest income in 2019: ▪ Loans held at carrying value(1) produced $64.2 million of interest income in the third quarter of 2019 (versus $57.9 million in Q2 2019 and $100.9 million for all of 2018). ▪
Slide 6: Investment strategy
Investment strategy • Continue to grow investment assets ▪ Purchased Performing Loans are providing recurring (and increasing) portfolio growth ▪ Opportunistic growth in other asset classes • Optimize Balance Sheet/Capital Structure ▪ Modest increase in leverage (including securitization) to support
Slide 7: Market conditions and investment activity
Market conditions and investment activity • Expand investment opportunities in the form of newly originated whole loans. Acquiring these assets is a unique process: ▪ Long gestation periods ▪ Creative approach to partnering with originators ▪ Flow vs bulk purchases • Opportunities still exist to pur
Slide 8: Stable earnings again provides dividend coverage
Stable earnings again provides dividend coverage GAAP EPS and Core Earnings again $0.20. Q3 2019 Q2 2019 Summary Income Statement $ in mm $ in mm Q3 2019 net income highlights include: Net Interest Income: • Higher other income, reflecting the following: MBS, CRT, MSR-related $ 36.9 $ 42.4 (1) ▪ Con
Slide 9: Third quarter 2019 investment flows
Third quarter 2019 investment flows • Continued robust investment activity with approximately $1.1 billion of asset acquisitions. • Acquired over $900 million of purchased performing loans, growing our holdings of whole loans for the 10th consecutive quarter. 2019 average quarterly whole loan acquis
Slide 10: Strong portfolio growth since expanding investment strategy to include Non-QM, Fix and Flip and SFR Loans
Strong portfolio growth since expanding investment strategy to include Non-QM, Fix and Flip and SFR Loans • Since expanding our investment universe to include Purchased Performing Loans, our investment portfolio has grown by $2.7 billion since the end of Q3 2017. • Residential whole loans and REO ha
Slide 11: MFA's yields and spreads remain attractive
MFA's yields and spreads remain attractive • MFA’s emphasis on credit risk over interest rate risk continues to deliver attractive portfolio yield and spread. ▪ Yield on interest earning assets of 5.32%. ▪ Net interest rate spread of 182bps. • MFA’s funding costs are expected to continue to benefit
Slide 12: Third quarter 2019 yields and spreads by asset type
Third quarter 2019 yields and spreads by asset type Amount Net Equity Yield/ Cost of Debt/Net Asset Allocated Return Net Spread Equity (millions) Funds Ratio (millions) (1) (3) Whole Loans at Carrying Value $4,969 $1,724 5.52% (3.90)% 1.62% 1.9x (2) Whole Loans at Fair Value $1,453 $307 N/A (3.95)%
Slide 13: MFA's net interest rate sensitivity remains low at 1.14
MFA’s net interest rate sensitivity remains low at 1.14 • Excluding hedges, our asset duration remains relatively low at 1.60. • Our assets continue to be primarily sensitive to mortgage credit fundamentals. • In addition, our leverage remains low, with a debt-to-equity ratio of 2.8x. Duration Risk
Slide 14: MFA's strategy continues to limit quarterly book value fluctuations
MFA’s strategy continues to limit quarterly book value fluctuations • Through asset selection and risk management Quarterly change in MFA's Book Value (left axis) and MFA's Asset Duration by Quarter (right axis) MFA has consistently limited quarterly book 15% 2.5 value fluctuations. 10% • Since 2014
Slide 15: Housing market data charts
# of Units (millions) 0% 2% 4% 6% 8% 10% 12% 1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 2.0 2.1 Jan-13 Mar-13 Apr-13 Jun-13 Jul-13 Sep-13 Oct-13 Dec-13 Jan-14 Mar-14 Apr-14 Jun-14 Jul-14 Sep-14 Oct-14 Dec-14 Jan-15 Mar-15 Apr-15 Jun-15 Jul-15 Sep-15 Oct-15 Dec-15 Jan-16 Mar-16 Apr-16 As of August 2019
Slide 16: Residential whole loan portfolio
Residential whole loan portfolio • We purchased over $900 million of residential whole loans in the third quarter of 2019. • We continue to grow our portfolio of Non-QM, Fix & Flip, and Single Family Rental loans by adding origination partners and developing our existing relationships. • Our seasone
Slide 17: RPL portfolio delinquency characteristics as of 9/30/2019
RPL portfolio delinquency characteristics as of 9/30/2019 • 87% of our RPL portfolio is less than 60 days delinquent. • On average, 28% of the 60+ days delinquent loans are making payments. • Prepayment speeds have outperformed expectations, maintaining a range between 6% and 14%. 17
Slide 18: Performance of Non-Performing loans purchased before 9/30/18
Performance of Non-Performing(1) loans purchased before 9/30/18 Acquisition Year 2014 2015 2016 2017 2018(3) Total Loan Count 743 2,365 1,069 3,124 1,274 8,575 UPB Purchased (in millions) $161.3 $619.9 $301.3 $704.7 $388.6 $2,175.8 9/30/2019 Status Performing(2)/PIF 35% 27% 29% 37% 49% 35% Liquidati
Slide 19: Non-QM investments
Non-QM investments • We have been purchasing loans made to Non-QM Portfolio Statistics (9/30/19) creditworthy borrowers who have limited WA LTV 66% conventional mortgage finance options. WA FICO 710 WA Coupon 6.42% • We have purchased over $3.1 billion UPB to date Avg Balance $452,637 • Delinquencie
Slide 20: Business purpose loans - Rehabilitation and Single Family Rental (SFR) Loans
Business purpose loans - Rehabilitation and Single Family Rental (SFR) Loans We continue to grow our holdings of Rehabilitation and SFR loans as we expand our existing originator relationships and develop new ones. Since inception we have acquired (including undrawn commitments) over $2.0 billion of
Slide 21: Summary
Summary • Continued successful execution of our investment strategy, with residential whole loan purchases exceeding $900 million and approximately $100 million of additional capital contributions to select loan originators. • Net portfolio growth of $500 million for the nine months ended September
Slide 22: Additional Information
SSS Additional Information
Slide 23: GAAP book value continues to be stable
GAAP book value continues to be stable QTR YTD 9/30/19 9/30/19 GAAP book value per common share at the beginning of the period $7.11 $7.15 Net income available to common shareholders 0.20 0.59 Common dividends declared (0.20) (0.60) Net change attributable to Agency MBS — 0.06 Impact of Discount Acc
Slide 24: Reconciliation of GAAP to Core earnings
Reconciliation of GAAP to Core earnings “Core earnings” is a non-GAAP financial measure of our operating performance, within the meaning of Regulation G and Item 10(e) of Regulation S-K, as promulgated by the Securities and Exchange Commission. Core earnings excludes certain unrealized gains and los
Slide 25: Reconciliation of GAAP Book Value to Economic Book Value
Reconciliation of GAAP Book Value to Economic Book Value “Economic book value” is a non-GAAP financial measure of our financial position. To calculate our Economic book value, our portfolios of Residential whole loans at carrying value are adjusted to their fair value, rather than the carrying value